SECP-PII Microinsurance Symposium Role of regulation and supervision

1. SECP-PII Microinsurance Symposium Role of regulation and supervision Jules Gribble 29 November 2011

2. Agenda • My task • IAIS Insurance Core Principles • Role of supervisor • Microinsurance (MI) focus • Disclaimer: My views, not WB or SECP

3. World Bank mission • Assess demand and supply for MI • Assess current regulatory and supervisory status • With SECP develop MI regulatory and supervisory framework: • Rules and regulations • Accounting • Policyholder protection

4. My task • Part of assessment of regulatory and supervisory status: • Review current position against IAIS ICPs • Provide input for overall review • IAIS = International Association of Insurance Supervisors • ICP = Insurance Core Principle

5. ICPs • 26 ICPs (replacing prior set of 28) • Approved 1 October 2011 • See www.iaisweb.org • Globally accepted framework for supervision of insurance sector • Apply in all jurisdictions regardless of • Level of development • Type of product • Services being supervised

6. Proportionality • Assessment should be appropriate to supervisory objectives • Principle of ‘Proportionality’: • Supervisors may adjust some requirements and actions to reflect the nature, scale and complexity of individual insurers • Additional IAIS guidance for MI in progress • Achieving simplicity may require effort • More than ‘simple’ product structures • Need robust but simple processes

7. Coverage of ICPs • Presume appropriate preconditions • 7 groups: • Supervisor (1 - 3) • Supervised entities (4 - 8) • Supervisory processes (9 - 12) • Prudential matters (13 - 17) • Distribution and disclosure (18 - 20) • Fraud and AML (21 - 22) • Groups and macroprudential (23 - 26)

8. Review process • ICPs (26) • Standards (233, average 9 per ICP) • Guidelines (1,600, average 7 per Standard) • Assess standards, then ICPs: • Observed • Largely observed • Partly observed • Not observed • Unable to assess • Not applicable

9. Aspects to consider • Life / Nonlife • Regulatory / Supervisory • Regulatory: Have powers and establish framework (laws, Rules etc). Intent • Supervisory: Processes to administer framework effectively. Implementation • Standard / Micro insurance • Multiple issues in standards

10. Role of supervisor • Analogy: A game • Supervisor: Referee • Regulation: Formal game rules • Supervision: Referee game in practice • Industry: Playing teams • Policyholders: Spectators • Supervisory regime • Enabler - provides industry with opportunity • Balance - care not to inhibit while retain control and protect policyholder interests

11. Standard / Micro insurance • Continuum, not disjoint Standard ins - used Wealth Under/Uninsured Micro ins Uninsurable through market Ref: IAIS_2007

12. Comparison • Insurance risk the same • Require grouping • Avoid anti-selection • Importance of insurance risk mitigation • Challenge: Operational changes • All steps in ‘chain’ from policyholder to insurer and (possibly) back to policyholder • Simplicity • Robustness • Group focus

13. MI – key ICPs • 4 – Licensing • 8 – Risk management and internal controls • 17 – Capital • 18 – Intermediaries • 19 – Distributors • 20 – Consumer protection

14. Supervisory interactions (Sup Int) • Need understand the value chain to have appropriate ‘refereeing’ that links are not broken or abused • System fails at the weakest link • Starts and finishes with the policyholders • Service providers positions need to be viable • MI based, long term, on simplicity, volume, group context, and consumer value

15. Sup Int: Roles Policyholder MFI Insurer User Distributor Manufacturer

16. Sup Int: Awareness Policyholder MFI Insurer ?? User Distributor Manufacturer

17. Sup Int: Supervisor Policyholder MFI Insurer Public opinion SBP SECP ?? User Distributor Manufacturer

18. Sup Int: Purchase & premiums Policyholder MFI Insurer Public opinion SBP SECP ?? User Distributor Manufacturer

19. Sup Int: Claims management Policyholder MFI Insurer Public opinion SBP SECP Rs ?? User Distributor Manufacturer

20. Sup Int: Policy servicing Policyholder MFI Insurer Public opinion SBP SECP Rs ?? User Distributor Manufacturer

21. Sup Int: Business partnership Policyholder MFI Insurer Public opinion SBP SECP Rs ?? User Distributor Manufacturer

22. Sup Int: Perceptions & reputations Policyholder MFI Insurer Public opinion SBP SECP Reputational Risk Rs ?? User Distributor Manufacturer

23. SECP interest in entire ‘chain’ • Insurance ordinance, 2000 (preamble) • Ordinance to regulate the business of the insurance industry • To ensure the protection of the interests of the insurance policy holders and • To promote sound development of the insurance industry ... • Holistic • Both insurance risks and all associated operational and business risks

24. Summary • Objectives of this WB project • In independent assessment of the insurance supervisory regime • Provide basis to enhance and address any issues identified • MI • No specific recognition in law or insurance regulatory and supervisory regime • Key distinctive aspects that need explicit recognition in supervisory regime. In progress

25. Contact details Jules Gribble, Director, Enterprise Metrics Phone: +61 408 127 624 Email: jules.gribble@enterprisemetrics.com.au